Three-peat? Fed copies 1990s playbook in bid to avert a downturn by hpschneider
WASHINGTON - In the midst of what became a golden decade for the U.S. Federal Reserve, central bankers twice in the 1990s cut interest rates in short bursts that managed to help the U.S. economy continue growing despite slowing investment and weak growth overseas.
A rate cut on Wednesday, which would be the Fed’s third this year, would lower the overnight benchmark lending rate to a new range of between 1.5% and 1.75%. Policymakers may emphasize that “the three cuts cumulatively have served to balance the risks to the outlook,” and will likely keep the economy on track, JP Morgan economist Michael Feroli wrote last week.
That in itself is a success for Powell. Beginning last fall, the Fed confronted a widening gap between what policymakers at that point thought would be continued rate hikes, and the expectations of investors who began factoring rate cuts into their outlook as a global economic slowdown took hold around the intensifying U.S.-China trade war.
Some of the ongoing problems like the trade war with China and the prospect of a disorderly British exit from the European Union also have lightened, at least a bit.It may have helped narrow gaps within the U.S. central bank as well. Even those Fed officials who have been most eager to cut rates now feel that one more quarter-percentage-point reduction should be adequate for the year.
“During the last six weeks my optimism has diminished,” said former Fed Chair Janet Yellen, who was president of the San Francisco Fed at the time. Without action by the Fed “we could easily end up, I think, in an extended growth recession.”The most recent jobs and retail sales reports were both weak. Economists polled by Reuters expect economic growth slowed in the third quarter to an annual rate of 1.7%, from a 2% pace in the second quarter.
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